A Wary Respect

With President Obama’s trip to China only one month away, James Miles writes on the current state of U.S.-China relations for the Economist:

This year marks the 30th anniversary of the restoration of diplomatic ties between America and China, which proved a dramatic turning point in the cold war. Between the communist victory in 1949 and President Richard Nixon’s historic visit to China in 1972 there had been as little contact between the two countries as there is between America and North Korea today. But the eventual disappearance of the two countries’ common enemy, the Soviet Union, raised new questions in both countries about why these two ideological rivals should be friends. Mutual economic benefit emerged as a winning answer. More recently, both sides have been trying to reinforce the relationship by stressing that they have a host of new common enemies, from global epidemics to terrorism.

But it is a relationship fraught with contradictions. A senior American official says that some of his country’s dealings with China are like those with the European Union; others resemble those with the old Soviet Union, “depending on what part of the bureaucracy you are dealing with”.

Cold-war parallels are most obvious in the military arena. China’s military build-up in the past decade has been as spectacular as its economic growth, catalysed by the ever problematic issue of Taiwan, the biggest thorn in the Sino-American relationship. There are growing worries in Washington, DC, that China’s military power could challenge America’s wider military dominance in the region. China insists there is nothing to worry about. But even if its leadership has no plans to displace American power in Asia, this special report will say that America is right to fret that this could change.

Hear an interview with James Miles, here:

Also on the topic of U.S. relations, Paul Krugman, New York Times columnist and professor of Economics and International Affairs at Princeton University, writes an opinion piece on China’s currency and what it means for the dollar:

Some background: The value of China’s currency, unlike, say, the value of the British pound, isn’t determined by supply and demand. Instead, Chinese authorities enforced that target by buying or selling their currency in the foreign exchange market — a policy made possible by restrictions on the ability of private investors to move their money either into or out of the country.

There’s nothing necessarily wrong with such a policy, especially in a still poor country whose financial system might all too easily be destabilized by volatile flows of hot money. In fact, the system served China well during the Asian financial crisis of the late 1990s. The crucial question, however, is whether the target value of the yuan is reasonable.